SIFMA's Economic Advisory Roundtable unveiled today its outlook for full year 2013 and 2014, forecasting that the economy grew at a 1.9 percent rate in full-year 2013 and will grow 2.7 percent in 2014.
"The Roundtable has slightly increased its forecasts for U.S. growth in 2014 to 2.7 percent from the 2.6 percent mid-year forecast," said Diane Swonk, chief economist at Mesirow Financial Holdings, Inc. and chairman of SIFMA's Economic Advisory Roundtable. "A strong housing market recovery, consumer spending and job growth were the most oft-cited upside risks to the forecast, while disappointing capital spending and housing recovery, rising interest rates and oil prices, and poor fiscal policy were noted as downside risks."
The Economy:
The median forecast called for 2013 gross domestic product (GDP) growth to be 1.9 percent on a year-over-year basis and 2.4 percent on a fourth quarter-to-fourth quarter basis. For full year 2014, GDP growth was expected to climb to 2.7 percent, beginning at 2.5 percent in the first quarter, 2.8 percent in the second quarter, and rising to 3.0 percent for the final two quarters.
Unemployment was expected to continue to improve in 2014. Survey respondents expected the full-year average unemployment rate to decline to 7.4 percent in 2013 and further decline to 6.7 percent in 2014. Non-farm payroll gains were expected to reach 2.2 million jobs in full-year 2013 and 2.3 million jobs in 2014.
Business capital investment for full-year 2013 was estimated at 2.6 percent. In 2014, it is expected to strengthen to 5.0 percent growth, but less so than the 7.2 percent forecast previously.
The median forecast for "headline" inflation, measured by the personal consumption expenditures (PCE) chain price index, is 1.1 percent for full-year 2013, and 1.3 percent for full-year 2014. The median forecast for the core PCE chain price index was at 1.2 percent for full-year 2013, with a 1.5 percent rise forecast for full-year 2014, slightly below the previously forecast 1.6 percent.
The 2014 outlook for inflation remains moderate, with economic slack/employment being the dominant factor, followed by global economic conditions, with the Federal Reserve's balance sheet and fiscal policy/deficit trends a distant third and fourth in importance.
Interest Rates:
The Federal Open Market Committee (FOMC) is expected to maintain its 0.0 to 0.25 percent target federal funds rate throughout 2013 and 2014. The median forecasts for 10-year U.S. Treasury is expected to rise quarterly, reaching 3.3 percent in December 2014, with economic growth prospects as the most frequently cited "greatest impact," followed by FOMC interest rate policy, and quantitative easing policy. Nearly 80 percent of respondents expected the Treasury yield curve to steepen through the first half of 2014, compared to the roughly 50 percent that expected steepening in the mid-year survey.
Monetary Policy:
While the FOMC announced that the tapering of securities purchases was not on a predetermined timetable, survey respondents were unanimous in their opinion that the FOMC would end securities purchases no later than in the fourth quarter of 2014, with roughly 20 percent predicting the purchases would end in the third quarter of 2014.
Risks to Economic Growth: Housing on the Upside; Oil Prices on the Downside:
The ongoing correction in business and real estate markets took center stage for promoting GDP growth in the first half of the 2014 outlook, with 65 percent of the respondents considering it the most important factor, followed by normalization of private credit markets.
The most oft-cited upside risks to the economic forecast were a strong housing market recovery, consumer spending and job growth, followed by lower gasoline prices, higher stock prices and the recovery of business spending. Downside risks include a disappointing capital spending and housing recovery, rising interest rates and oil prices, and poor fiscal policy.
Impact of Federal Policy:
Roughly 75 percent of respondents believed sequestration led to lower GDP growth in 2013 by up to 100 basis points, and nearly 75 percent believe the recent budget deal to temper sequestration will improve 2014 growth by up to 100 basis points in 2014.
Respondents also weighed in on the impact of financial regulatory policy, with 67 percent believing the concern or uncertainty over the direction of financial regulatory policy reduced GDP by up to 100 basis points in 2013 and 2014.
The full report is available at the following link:http://www.sifma.org/econoutlook20141h/